Time to Prepare for the End of the Year 2 (Part Two)

The end of the year is rapidly approaching! To avoid costly penalties that can arise from inadvertent errors in the year-end rush, plan sponsors should begin talking with their service providers now about what must be done by year-end. Our last installment looked at participant notices that may need to be provided by year-end. Now, we’ll turn our attention to retirement plan amendments.

Retirement Plan Amendments

The end of each plan year also brings required plan amendments. Below are a few amendments that may need to be made to your plan:

Changes implemented operationally this year – generally, the plan must be amended by the last day of the plan year to reflect any changes that were implemented operationally during the plan year. Common amendments are the addition of in-service distributions or crediting of additional service for mergers completed during the year. Certain plans may also need to be amended to reflect required disability claims procedures, which we’ll discuss in the next installment. Keep in mind that retroactive amendments may not, however, retroactively reduce or “cutback” benefits.

Design changes effective on the first day of next year – changes to plan design may need to be adopted before the beginning of the plan year. As referenced above, not all amendments can be made retroactively at the end of a plan year. Changes to matching formulas, for example, should be made before they are effective (particularly if they reduce the match). Similarly, changes to safe harbor designs must be made in advance of the change.

For collectively-bargained hybrid plans (such as cash balance plans), amendments to reflect the final hybrid plan rules – this deadline was delayed until the first day of the first plan year beginning on or after January 1, 2019. However, if the last collective bargaining agreement was ratified on or before November 13, 2015, and expires before January 1, 2019, the amendment must be adopted before the first day of the plan year that begins on or after the later of the date on which the last applicable collective bargained agreement expires, or January 1, 2017. Close attention must be paid to the applicable deadline for these collectively-bargained plans.

Failure to adopt amendments timely can result in costly qualification issues, operational errors, and IRS penalties. All plan amendments should be carefully reviewed to ensure they match the plan sponsor’s intent and the requirements of the law. Be sure to review all amendments carefully and address any concerns or questions with your benefits counsel.